A great deal of financial exposure exists for traders in financial markets. For example, in the energy markets, energy traders generally buy and sell several different energy commodities, such as electricity, oil, natural gas and coal. However, these energy traders trade commodities both in a physical sense, where actual delivery of a product will eventually take place, and in a financial sense, where only money will change hands based on future market value. Energy traders often trade these commodities with each other—exchanging different quantities of the same commodity several times during a given month, week or day. As a result of this web of trading contracts, the financial exposure between companies might be billions of dollars on any given day. When one of these companies encounters financial difficulties, causing it to default under an agreement or file for bankruptcy, the stage is set for financial disaster.
The collapse of large energy trading companies such as Enron and Dynegy are real-life examples of this problem, which has resulted in changes to current energy trading. The extent of money lost reach into the billions of dollars due to these scandals and has resulted in lawsuits and criminal charges. Under traditional trading agreements, a defaulting company might be able to avoid payment of outstanding obligations, yet still collect payments that it is owed. Further exacerbating the problem, the company required to make payment without receiving what it is owed might then be forced to default on its obligations to other companies.
As such, energy traders have a heightened interest in dealing with companies with appropriate creditworthiness. However, obtaining the necessary credit is a time-consuming and expensive proposition for most participants. Furthermore, obtaining the appropriate credit is a slow and cumbersome process that can impede the efficiency and speed of trading in energy. Not to mention, obtaining credit is a drain on the balance sheets of many companies. Since energy trading companies do much of their trading with each other, there is a need to create efficient strategies for maximizing market liquidity and minimizing collateral burdens for these participants.
Accordingly, there is a need in the art for methods and systems for netting payments and/or collateral obligations that maximizes market liquidity and minimizes collateral burdens between participants. Particularly, there is a need of such methods and systems in the energy industry.